JabbokRiver January 2024 Portfolio Update

And so we launch into 2024! :rocket:

At the end of December, here’s where I was:

Samsara (IOT) 15.75%
Palo Alto Networks (PANW) 14.80%
Nu Holdings (NU) 14.22%
CrowdStrike (CRWD) 12.82%
PureStorage (PSTG) 11.96%
The Trade Desk (TTD) 11.20%
Remitly (RELY) 9.75%
Aehr Testing (AEHR) 7.99%

January began in a death spiral, as my AEHR position sank me after earnings and the market returned some of their Santa Rally gifts. As I posted earlier, I got out of Aehr entirely, although I have not ruled out a return at a (now) much better price.

The rest of the month was mostly good, and my portfolio ended up 2.53% for January, 2024 and 19.54% since inception in 2021. Since the end of 2023 was the first time it had ever been green at all, I’m happy with that.

Aside from exiting my Aehr position, I made just one trim and added one new company. I have a much larger cash position than I typically do. Just haven’t figured out what to do with it yet.

The trim was Remitly, which I cut in half. That wasn’t due to any news, I just wanted a little less exposure.

The new company I just picked up last week: Beam Global (BEEM). (Note the ticker spelling) From their IR page:

Beam Global is a clean technology leader providing innovative, sustainable products and technologies for electric vehicle (EV) charging, energy storage, energy security and outdoor media. Based in San Diego and Chicago, Beam produces Made-in-America products with the mission to Lead the World to Clean Mobility.

Beam is a small company. A very small company. With a market cap of 95.15M and just 364 employees, it makes Aehr look like a behemoth. It is not yet profitable, but it has no debt and is headed in the right direction. It does have a $100M line of credit, which sits unused as of this moment.

I’ve been looking for a green energy play and, for now at least, this seems promising. Apparently the the Pentagon and Local Governments think so, too. Here is a slide of clients from their Investor Deck.

Since that slide from November, they have announced additional orders from the City of Los Angeles, an additional order of 88 systems from the US Army, and what looks like a first order from the US Department of Homeland Security.

They just added a former Nuclear Navy Officer to their C-Suite, so I would expect the Navy to come along any time now.

In late December they put out a release about the county-level government entities piling into their solutions:

They play well with others:

They do more than just EVs.

A large piece of their advantage and appeal appears to be an energy security play. No one can target the grid and take them out. You’d have to target each charging station individually. They require no installation. You just put the thing down wherever you want it. The technology tracks the sun, and at least some of the units combine wind and solar in the same unit. I’m still learning more about that.

But, are they growing? Why, yes. Yes, they are.

You know I like CEO interviews. There aren’t many that Beam Global themselves haven’t produced, but I really liked this one from Alpha Wolf Trading. Just under 40 minutes. CEO Desmond Wheatley talks about the advantages of their recent acquisitions, the moat given by their first-mover advantage and patents, and the general advantages of their products.

With a recent acquisition, they now have access to a huge European market for street lighting.

Here’s an overview of the main product line:

So…very small, but selling to some serious customers and growing fast. Passionate, experienced CEO (although not a founder) who appears to be executing well. Products that are desperately needed and that solve very large problems.

They report on a different time-table. Q3 was in mid-November; Q4 will be in March. Lots of good news in the last couple of months, so I’m hopeful. I can see Bear shaking his head as he goes for Amazon and I run for the tiniest company I can find! May we both be right.

Here’s my portfolio as of today’s close: (Changes from last month, apart from the above, are solely due to stock price fluctuations.)

Palo Alto Networks (PANW) 15.95%
Samsara (IOT) 13.9%
Nu Holdings (NU) 13.79%
CrowdStrike (CRWD) 13.78%
PureStorage (PSTG) 12.58%
The Trade Desk (TTD) 9.99%
Beam Global (BEEM) 7.08%
Remitly (RELY) 5.65%

CASH: 6.1%

JabbokRiver

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Thank you for that intro, sounds intriguing. I’ll go take a look.

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I introduced Beam Global (BEEM) in my portfolio update last night and they had a pop of over 6% today. I’m so new to the company that I was not yet on their mailing list, so when I went looking for news, I found this news from this morning:

From the way they worded this, it looks like using Beam’s products by prisons is a new use case. And I find it compelling.

From the release:

“Correction facilities and other secure or sensitive locations can rapidly deploy EV ARC charging systems without disruptive construction and electrical projects which introduce significant security risk and can be outright prohibited,” said Beam Global CEO Desmond Wheatley. “Our ability to have a single person deliver operational EV charging in minutes instead of months means that correctional officers do not need to security-clear multiple-member construction teams or manage security during lengthy projects. Any secure environment offers an excellent opportunity for further EV ARC deployments. This is another excellent example of the unique and valuable attributes our rapidly deployed, low touch, infrastructure products bring to the EV charging space.”

The North Carolina prison system bought 19 charging stations and two trailers. Think about this. Beam has created portable EV charging stations. You don’t need the grid. You don’t need construction. You don’t need special installation by the company. You can buy one of their trailers and just move it to wherever you need it!

Is there another company doing that? Read again the line I highlighted above: Our ability to have a single person deliver operational EV charging in minutes instead of months…

I don’t know what their Q4 will look like, but they’ve been cranking out releases with deals like this on a regular basis. They’ve put out releases for deals adding up to $13.9M in just over 2 weeks. Their revenue for all of Q3 was 16.5M.

It seems like I must be missing something, but this seems like a game-changer for EV charging. And that’s before you get to the street light contracts they just picked up with the new acquisition in Europe.

How about this European patent they picked up in November? Charge up under a streetlight that will also charge your vehicle!

JR

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JR,

Interesting find and thanks for introducing $BEEM.

I haven’t looked into them at all yet, but the first question in my mind is how defensible their patents are, and what-all is patented.

I’m no patent lawyer, but it seems to me a patent on the idea of a standalone solar panel with attached charger isn’t going to withstand the inevitable legal challenge.

Have you looked into exactly what has been patented and if so could you share some details?

And again, thanks for introducing $BEEM!

–intjudo

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Thanks @intjudo !

I have not looked into the patent details. I just keep seeing the mention of patents in their deck and promotional materials.

I did just do a search for Beam Global Patents and turned up this page from Justia Patents. But also this listing from the USPTO, which seems to have some overlap but not all.

I don’t understand the technology enough to know how helpful/essential these are to a moat. Or where one might find the complete list.

It also seems that going beyond the US, you need different patents? Beam put out this press release last May about a new European patent.

And then there were these, announced a year ago, for patents in China and India:

In the video I linked in the first post, the CEO talked about a bunch of patents for the European street light tech that they got with their latest acquisition. I’m not sure, but I think this announcement from the end of November last year might be related to that:

The investor deck from their Nov. 14 call mentions several new patents pending.

The special sauce in a lot of them seems to be the battery/storage technology, but neither patents nor any of that tech is anywhere near my wheelhouse. But maybe others can find a complete and up-to-date list or be in a better position to judge the moat that any of these provide.

JR

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JR, what do you make of their negative gross margin? In the most recent quarter they logged $6.61M of revenue at a $6.95M cost of revenue. Operating expenses were another $6.47M. Presumably operating margin will improve with scale, but what is going to enable them to turn that gross margin significantly positive? Will they be able to bring per-unit costs down substantially, or are they selling below cost in order to build momentum and plan to increase prices later?

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Please think carefully about how small a company this is, and how illiquid.

With an average volume of about 150,000 and a stock price where it is, that means that average volume in dollars is roughly equivalent to about 3500 shares of Crowdstrike (at $300 per share), for instance.

Crowdstrike trades over 3 million shares a day and would trade 3500 shares, Beams total dollar volume, in a few seconds.

If you had a large dollar position in Beam and some bad news came along you wouldn’t be able to exit before a very substantial price fall, so keeping your position small would be wise in my opinion.

Saul

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Thanks for the question, @Softie

Since I’ve only been in the company a week, I went back to the Q3 2023 Earnings Call transcript from Nov. 14, 2023. The issue of gross margins was raised several times, both in prepared remarks and in questions.

The place where it was most succinctly addressed was in the Q&A:

James McCulloch: Well, I think – the Street would also appreciate the additional growth opportunities reflected in the share price. So – the other issue was on the gross margins going into next year. I think you’ve mentioned that in the first quarter, there’s about a $12,000 per unit cost savings through engineering improvements, material improvements, as well as that 8.5% price increase, which would take effect, fully take effect in the first quarter. Back of the notebook numbers, do you have any clarity on gross margins going into next year. It looks like they should improve just on those two factors alone to over 20%. So do you have any clarity for the group on that/

Desmond Wheatley : Yes. In fact, in my comments, my prepared comments, I was more aggressive than that. I think we get better than 20% improvement in gross profitability. And then I went one step rather than that and did the back in napkin arithmetic for you, you can see that with those — with that rate of gross profitability, we would basically — had we had the same way of growth possibility that we’re anticipating in the first quarter and moving forward. And again, we’re not going to stop improving that either. But just on the numbers that we’re talking about today had we had that same level of gross profitability throughout all of this year, we would have been pretty close to breakeven right now.

Here are some snippets from Wheatley’s prepared remarks related to gross margins:

The acquisition of All Cell Technologies has also contributed significantly to our gross margin improvement through a reduction in costs in the batteries, which we’ve integrated into our products. We’re going to start to see the biggest impact of those cost reductions in the fourth quarter of this year and the first quarter of next, really significant savings. Now our engineers in San Diego, Chicago, Belgrade and Cryago [ph] are all working on the next and what I believe will be the most significant diversification in our product offering in the company’s history.

Also:

As I told you during our second quarter earnings call, the gross profits we were generating then and are generating now are as a result of increased efficiencies and volumes of product running through our factory. Those volumes are sufficient to overcome the fixed overhead burdens, which had previously caused us to report negative gross profits, even though the unit economics on the EVR have been positive since quite early in that product’s development.

We’re better off from a cash point of view, every time an EVR leaves a factory, not worse off as would be the case if the unit economics were not positive. Now we’re entering a new year of cost improvements, which are more dramatic than those which we’ve received simply through increasing volumes. Engineering and operational improvements should deliver a better than 20% improvement in our cost structure and a similar improvement in our gross profit. I stated previously that those cost savings should take effect materially in the fourth quarter and be fully manifested by the end of Q1 2024. The facts are supporting that prediction, and we’re now looking at current cost to produce EV ARC, which are meaningfully lower than at any time in our history.

A big catalyst for improvement seems to be their acquisition in Serbia (Amiga), now Beam Europe:

We know that there are further opportunities to generate more significant cost reductions, and we’ll continue to develop and invest in those areas which will enable the savings.’;’ Beam Europe actually provides a couple of excellent examples of these opportunities. Our operations over there will benefit immediately from the reduced costs, which are now incumbent in the latest generation of EV ARC products, but also from day 1, Beam Europe will have a lower cost structure, not just because Serbia is a much lower cost environment in which to operate, but because Beam Europe is better equipped than our U.S. operations.

And then there’s this on the price increase (this is all still the prepared remarks):

The other significant impact to gross profitability, which is coming, but as yet has not affected our results is the price increase we put into effect this year. New sales will include this increase in price, which adds about 8% to our base model.
**> **
> That 8% will go straight to gross profitability because nothing else has changed where the price raise is concerned. Combining the price increase with the cost savings now being realized in the EV ARC systems that are coming off the line today, will give us an improvement in our gross profitability in the mid- to high-20s percentages. Again, the full impact of this improvement will come when all the current cost improvements are implemented and we’ve worked through our current backlog, which was priced before the increase went into effect. Where backlog to last us through the first quarter, so you should anticipate the full gross profit improvement at or towards the end of that Q. We generated over $1.5 million of gross profit so far this year, net of noncash items.

He revisits those things in some of the questions but I didn’t notice anything new in those later answers.

So…improvement coming from:
1. A price increase (takes effect once current backlog is cleared out)
2. Savings from manufacturing for their biggest market (Europe) in the lower-cost Serbian facility. (Also mentioned here was that they own not just the business but the property in Serbia. No rental costs there.)
3. Scale of triple-digit growth.
4. Efficiencies from the first acquisition (the battery company)
5. Efficiencies from engineering improvements.

Of course we have to see them execute on that, but that’s the path.

The acquisition of what is now Beam Europe is key. Wheatley said he’s been looking for the right company to acquire in Europe for five years and this was it. I’ll close this with his comments on widening the top of the funnel:

In the meantime, I and the rest of the management team at being Global are ensuring that we diversify our opportunities for revenue generation. Said another way, we’re widening the top of the funnel. We’re doing that in the United States by adding sales resources and targeting a broader set of customer prospects as well as deepening our government relations and playing a greater role in the formation of policy rather than waiting for that to happen without us. Of course, absolutely the most significant step that we’ve taken to broaden our prospects is the opening up of Europe as a market for our products. Europe is by every measure, the largest potential market for our products. So we haven’t just widened the top of the funnel marginally. We’ve doubled or tripled it.

Hope that’s helpful!

And @SaulR80683 , I hear you. It’s small and could get squashed. If they didn’t have the customer base they listed, I’d be more concerned, but I still expect a lot of volatility. It’s a high risk/high reward play. Likely what I get for having a career in hope!

JR

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After the AEHR debacle - a small company that did get hammered when things went sideways - my enthusiasm for BEEM is tempered by its size after Saul’s comment. The subtle but important difference I noticed in the question and the answer could be me being once bitten twice shy, but Wheatly did not say gross margins would increase to OVER 20%, he said they would improve BY 20%.

Vince

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Hi Vince, Let me be sure that I was clear. I wasn’t saying don’t buy BEEM if you think it sounds like a good investment. I was saying this is a tiny company and don’t take a huge position. Their total volume yesterday, for example, was less than 100,000 shares. And those shares are only $7 per share, so we are talking about total volume trading for the day of only roughly $700,000. Just be careful.

Also Beam doesn’t sound at all like an Aehr, which was taking care of a small part of a manufacturing process (which, who knows, could be bypassed), and with only one major customer who accounted for 88% of orders. Beam sells its own finished products itself to companies as well as military and government entities.

Best,

Saul

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Saul,
Well understood. I meant that I was now considering size and float while making my decision, not that I thought the companies were equivalent in any other way.
I’m interested if others see the answer to the gross profit question to be more of a deflection.

Vince

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Beam Global announced this today. They are inviting any and all interested investors to a conference call to find out more about the company and ask questions. Anyone can submit a question to IR for inclusion in the call.

They don’t report until March, and it doesn’t sound like some kind of pre-announcement, although who knows. I’m going to listen in to this webcast next Thursday, 2/15, at 4:30 pm EST.

JabbokRiver

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